The CPI has been designed as a general measure of price inflation faced by households. While several conceptual bases are possible, the ABS has adopted the concept of the CPI as a measure of changes, over time, in the prices of a basket of goods and services acquired by households in the eight capital cities in Australia.

The simplest way of thinking about the CPI is to imagine a basket of goods and services of the kind typically acquired by Australian households. As prices vary, the total cost of this basket will also vary. The CPI is a measure of the changes in the cost of this basket as the prices of items in it change.

From the September quarter 2005 onwards, the total basket is divided into the following 11 major commodity groups: Food; Alcohol and tobacco; Clothing and footwear; Housing; Household contents and services; Health; Transportation; Communication; Recreation; Education; and Financial and insurance services. These groups are, in turn, divided into 33 subgroups and the subgroups into 90 expenditure classes.

In addition to the aggregate 'All groups' index, indexes are compiled and published for each of the groups, subgroups and expenditure classes for each state and territory capital city. National indexes are constructed as the weighted average of the indexes compiled for each of the eight capital cities.

Work has commenced on the latest review of the CPI. The 16th series CPI review will be the first major review undertaken since 1997. It will involve updating item weights, and examining the scope and coverage of the index and other methodological issues. The resulting 16th series CPI will be published in the September quarter 2011 CPI release.

Price movements by city

Table 29.1 presents All groups CPI numbers for each of the eight capital cities and the weighted average of the eight capital cities, together with percentage changes.

The capital city indexes measure price movements over time in each city individually. They cannot be used to compare price levels between capital cities. For example, the index for Sydney in 2008-09 of 165.8, compared with the corresponding index for Darwin of 163.6, does not mean that prices in Sydney are higher than those in Darwin. It means that, since the reference base period (1989-90), prices in Sydney have increased by a greater percentage than those in Darwin (65.8% compared with 63.6%).

These indexes represent the conceptually preferred measures for assessing the impact of changes in prices on the disposable incomes of households. These indexes are particularly suited for assessing whether or not the disposable incomes of households have kept pace with price changes. The CPI, on the other hand, is designed to measure price inflation as faced by all households and is not the conceptually ideal measure for assessing the impact of price changes on the disposable incomes of households. The most notable differences are that living cost indexes include interest charges but do not include house purchases, while inflation indexes do not include interest charges but do include house purchases.

Table 29.4 shows that, between 2007-08 and 2008-09 changes in living costs ranged from a low of 3.0% for Employee households to a high of 3.8% for Age pensioner households. The CPI rose by 3.1% over the same period. Over the period from 1998-99 to 2008-09, changes in living costs for all four household types were similar to the change in the CPI. Changes in living costs ranged from 36.8% for Self-funded retiree households to 41.1% for Other government transfer recipient households. The CPI rose by 37.6%.

The September 2009 quarter saw the first quarterly publication of the ALCIs. Previously they were published annually in the June quarter.

The Pensioner Beneficiary Living Cost Index was published for the first time for the June 2007 quarter. For more information about this index see the article Pensioner and Beneficiary Living Cost Indexlater in this chapter.

Long-term price series

Although the CPI has only been compiled from 1948, an approximate long-term measure of inflation faced by households has been constructed by linking together earlier selected retail price index series (table 29.5). The index numbers are expressed on the reference base year 1945 = 100.0.

Graph 29.6 shows the annual percentage changes derived from this retail/consumer price index series for the period 1908-2008.

International comparisons

In analysing price movements in Australia, an important consideration is Australia's performance relative to other countries. In recognition of the many differences in the structure of the housing sector in different countries and in the way housing is treated in their CPIs, the Seventeenth International Conference of Labour Statisticians (2003) adopted a resolution which called for countries, where possible, to compile and provide for dissemination to the international community an index that excludes housing and financial services.

Table 29.7 presents indexes for selected countries on a basis consistent with the resolution and broadly comparable to the Australian series 'All groups excluding Housing and Financial and insurance services'.

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